foreign currencies
Midnight setup strategy for Forex Scalping
If you are awake and available for trading the Forex Market at midnight this strategy can makes you win. Pay attention to the following details!
This strategy is based in the principle that it’s very difficult to find same size candles for 2 consecutive days on a daily chart. The main fact that it’s going to influence us from this conclusion is that prices are moving steady either up or down without producing “noise”, an element always present on smaller time frames.
Entry
The entrance hour should be at the 00:00 according to your local time or according to your trading platform. In this moment, the daily candle is newly formed and you will be able to find the highest and lowest price of the day for the previous daily bar.
If the price bar (including shadows) is less than 90 pips long we recommend not to open new trades the next day (this is a requirement for GBP/USD pair, but can be changed for other currency pairs).
If you suddenly discover that the previous day bar becomes an Inside bar you should be careful with entries the following day. While an Inside bar candle gives a good breakout opportunity the following day, it can also be a dual whipsaw breakout, the most unwanted scenario for Forex Scalping.
If anyways you decide to trade the next day you will be depending on the candle of the day before so, establish a Buy Stop order at the top (the highest price +5 pips) and a Sell stop order at the bottom (-5 pips). Over the time you will be able to adjust these additional pips s and stops depending on the currency pair you are trading with.
Exit
You should exit once that one of the orders is filled. At midnight with the new daily candle open, adjust your orders and stops according to the previous daily candle, following the same routine; keep on scalping the market until you raise +100 pips, then you can close current and enjoy the benefits of a well done job because your profits will arrive soon.
You should quickly close your current open positions (with either profit or loss) in two different cases: first of all if a daily candle becomes a Doji candle (or it’s about to become). The second occasion in which you should close your trades is if you met a Shooting Star candlestick in an uptrend or a Hammer candlestick in a downtrend.
Inviduals scalping in the Forex Market
There are several individuals that act in the Forex market, the traders are usually divided into two groups:
The first one in composed by the hedgers account that represent less than the 5%, consists on business and other kind of organizations competing in the international trade. Their main aim is to diminish or neutralize the currency fluctuations’ impact by using different market tools.
The other percentage (95%) is composed by the speculators account, the private companies and individuals, the public organizations and banks. Their purpose is to get profit from the fluctuations in the exchange of currencies, ought to that the Forex market can enjoy its liquidity.
Talking about the individuals acting in the Forex market we also have to mention the market makers. Almost all the deals are made by traders (mention above) and market makers in conjunction.
The market makers are the counter part to the clients, they don’t operate as trustee intermediaries. They perform their clients’ hedging according to their policy that covers different guidelines and agreements. The commonest examples are banks or trading platforms, they don’t represent the client as an intermediary, but use their money for buying and selling financial instruments. They don’t have a fluid relationship with their clients and they usually manage all the positions as a whole, detecting interesting movements and acting for all their clients at the same time.
Different exchange rate systems
We have 4 different types of exchange rate systems where an exchange can operate.
1. Fully fixed exchange rates
In these systems, the government or the central bank intervenes in the currency market to maintain the exchange rate in a fixed quantity. This kind of systems doesn’t allow fluctuations from their central rate.
2. Semi fixed exchange rates
These systems are characterized for permitting a little movement in a determinate range. The exchange rate is the dominant target of the economic policy-making and the interest rates are established to meet the target exchange rate.
The advantage of both kinds of fixed rates is the less speculative activity of the market, providing a great certainty for exporters and importers.
3. Free floating exchange rates
In these cases, the value of the currency depends on the foreign exchange market’s demand and supply. Ought to that, the trade and the capital flows are the main elements that affect the exchange rate.
The main characteristic of these systems is the exchange rates’ possibility of moving according to the market force, always without the intervention of the government or economical institutions. The currency can experiment a change on its value due to the changes in the supply and demand.
These systems are not very common as the governments usually try to control and manage the value of their currencies.
4. Managed floating exchange rates
These systems are the preferred for most of the countries, where the value of the currency is determinate by the market forces and where the government can intervene if needed.
In the case of the floating exchange rates we can highlight two different advantages, the first one is the fact that the large balance o payment deficit that some countries could experimented can be solved by an automatic adjustment provided by the fluctuations in the exchange rate. The second advantage is the possibility of the government to flexibly determine the interest rates.
Technical breakouts
Pattern Scalping Strategy
We can define technical breakouts as the cases in which a range breaks down without any previous or obvious reason. In the case of the news released traders know that they are under the possible effects of an unexpected argue that could affect to the trade market the whole day so they are prepared for it; while with a technical breakout anyone could be catch unaware.
Technical breakouts are almost impossible to predict and sometimes also almost impossible to explain.
Ought to their unusual and sudden apparition scalpers should be much more conservative when scalping this pattern than in the case of scalping the news released. The main risk is to find a market that is up and suddenly goes down without warning; to avoid the chaos is recommend to trade with small sizes and stop-loss orders.
The key issue is to identify the phase of the range pattern- that could be up or down- and trade it in short periods of time applying the general rules of technical trading.
The Best Currencies
In general we can say that the best currency pairs for scalping are those that are not prone to registered sharp movements in a long period of time, or if they are, such movements are less frequent than in the other currencies’ cases. Considering that, the best group for scalping is the group described as the major pairs, and among them, the EUR/USD pair is the best one ought to its characteristics, as it is the most liquid and least volatile one.
Major pairs
In this group could be included pairs such as the EUR/USD, the GBP/USD, the USD/CHF, and other pairs formed by some of the currencies of the most powerful and stronger countries all over the world. Although the pairs that include the JPY (Japanese Yen) can be also included in this group, they behave differently and could be risky to treat them as the others.
The main characteristic of the majors pairs is liquidity. Their second characteristic is relatively subdued responsiveness to market shocks. Any cause that could evolved into a 100 pip movement in the AUD/JPY pair, will at the same time move the EUR/USD by 30 points in most of the cases, and sometimes even by less points. The major pairs are used all over the world because their common trade; almost all the banks and important institutions can buy, sell and change money in these currencies. They are the giants of the currency market in terms of trade volume, and slowly movement.
The scalpers that would not like to risk so much and get conservative profits could concentrate their operations in the major pairs.
Carry pairs
Carry pairs have the good nature of been liquid, but also the problem of been volatile. This pairs such as the EUR/JPY or USD/JPY are traded all over the world but this operations have a higher risk ought to their volatile behave. The Japanese currency is used by many financial actors to invest and buy in insecure business and assets. As a result, when there is any crisis, change or shock in the market these pairs react in an excessive mode which is even difficult to interpret for the traders, especially in the short time frame where they usually act.
The carry pairs are mainly used for incoming operations and interests. Scalp with them is not always a secure business because due to a unknown causes, the spreads could widen so quickly that even a stop-loss order couldn’t avoid us from an important loss. The sudden widening can also happen with the major pairs but in the carry pairs case is more common, deeper and longer.
It’s not recommend for the beginners to scalp in these currencies, the experienced scalpers could trade them according to the typical tendencies of following strategies and achieve benefits from the breakouts and any kid of sharp movements.
Exotic Currencies
Exotic is a term used in the options market, but we are also going to use it to discuss about the “rare” or uncommon currencies, characterized for been less liquid and less well-known. Almost all of these pairs are unsuitable to scalping. This group includes volatile pairs as the NOK/USD (NOK being the Norwegian Krone), the BRL/USD pair (with the Brazilian Real), and many other formed by lesser known different currencies.
This group is not suitable to scalping because we can often find unpredictable price gaps that make almost impossible to use, in a short period of time, money management strategies.
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